The ruling turns a spotlight on an aggressive tax-cutting strategy created last decade by AIG Financial Products and bankrolled by several European banks.

The strategy involved trading derivatives with the aim of generating capital losses and foreign tax credits for large corporations, like HP, which then used them to try to lower their U.S. tax bills.

Judge Joseph Goeke of United States Tax Court in Washington, D.C., ruled against HP, which had sued the IRS in 2009 seeking the refunds.

The strategy, broadly known as a foreign tax credit generator, involves complex investments by large U.S. companies in foreign entities, typically in low-tax jurisdictions. The companies claim on their U.S. tax returns offsetting, or tax-lowering, credits for payments they make or owe to foreign tax authorities on the investments.

The IRS contends that many foreign tax credit generators lack economic substance and are engineered to create artificial financial benefits that are not valid for IRS deductions. The IRS outlawed many foreign tax credit generators around 2007. An IRS spokewoman declined to comment on the HP ruling.

HP’S AIG STRATEGY USED ABN-AMRO

The AIG-FP strategy used by HP involved a Dutch entity, called Foppingadreef, that was created by AIG-FP in 1996 and funded by Dutch bank ABN-Amro.

In his 82-page opinion, Judge Goeke wrote that HP’s investments in Foppingadreef in 1996 were not valid for more than $15.5 million in capital-loss deductions claimed by HP in 2003 because the investments were not real economic bets. Instead, the judge wrote, HP’s stakes in the Dutch entity were carefully structured loans made by HP to and via the entity, which paid back HP.

“HP’s investment is more appropriately characterized as debt, rather than equity, for Federal income tax purposes,” the judge wrote. That legal language echoes rulings of previous years that outlawed retail-investor tax shelters with names like Son of Boss.

Foppingadreef also generated for HP at least $178 million in tax savings in so-called indirect foreign tax credits that are not allowed, according to the ruling.

Indirect foreign tax credits are tax offsets created by interest, dividends and other investment returns. Because Foppingadreef was not an equity investment, and instead was a debt vehicle, the indirect foreign tax credits claimed by HP were not valid for deductions, the ruling said.

DUTCH ENTITY BLESSED BY LAWYERS

Foppingadreef was incorporated in the Dutch Antilles, a Caribbean tax haven, with lawyers from Sullivan & Cromwell and Skadden, Arps blessing the entity. AIG-FP sought legal advice for the entity because, the judge wrote, “AIG-FP understood that in order for the transaction to be marketable, it would need to be reviewed by others to ensure that it had broader appeal.”

Spokesmen for the two law firms could not be reached for immediate comment.

The AIG-FP financial engineer who created the transaction, Robert Findling, wanted to use differences between European and U.S. tax treatments of a certain type of interest payment “to model a foreign investment that would generate a stream of preferred dividends and produce significant foreign tax credits,” the judge wrote.

Foppingadreef generated the losses and credits by trading in various derivatives, including warrants and swaptions. AIG-FP, which is based in London, could not be immediately reached for comment.

One day after the 1996 incorporation, AIG-FP closed a planned deal to sell a major stake in Foppingadreef to ABN-Amro. A spokesman for ABN-Amro could not immediately be reached for comment.

In 1996, AIG-FP began pitching Foppingadreef to clients as an attractive tax-advantaged investment. Over a series of meetings last decade, Foppingadreef was reviewed by HP’s treasury, legal and tax departments in Palo Alto, Calif., at company headquarters, and approved at the highest levels of the company. A spokesman for HP declined to comment on the ruling.

In early 2004, HP transferred its shares in Foppingadreef to ABN-Amro, and claimed a capital loss of more than $15.5 million. The judge wrote that the entire transaction was not an investment because in part it was designed to allow HP to cash out its stake effectively, a loan at a pre-determined date.

In a separate lawsuit filed against the IRS in Tax Court in 2009, HP is seeking to recover an additional $248.5 million in taxes and interest it paid in 1994, 1995 and 1998.

Campaign is on for savers to move to socially responsible cash Isas – and the rates are surprisingly competitive too

You are looking to open a savings account, but would like your cash to be used in a socially or environmentally responsible way rather than financing arms dealing or other dodgy activities. Or perhaps you are angry about the cuts and bankers’ bonuses and want to teach the big banks a lesson by moving your savings elsewhere.

If either of these scenarios strikes a chord, a best-buy guide launched this week should help make it easier to choose the right account. And you might be surprised at the number of credit unions that are now offering competitive interest rates of up to 4%.

The Move Your Money campaign, which began as an anti-Wall Street movement in the US and arrived in the UK this year, has put together what it says is the first comprehensive list of socially responsible cash Isas offered by ethical banks, credit unions and building societies. It says the aim is to “help people choose an Isa that not only offers a good financial return but also puts their money to use in a responsible way”.

The online guide enables people to rank the accounts by interest rate, provider type and minimum deposit. It also tells you whether the account is instant access or one where you have to give notice to withdraw your cash, and if it allows you to transfer money in from existing Isas. In addition, Move Your Money has given each provider an “ethiscore” out of 20.

These are some of the better-paying accounts featured:

• 4% Top of the table in terms of headline rate this week are North London Credit Union and the Leeds and Skipton building societies, all of which have Isas paying up to 4%.

Traditionally, credit unions have been excluded from the best-buy tables, but new rules mean they are now able to pay interest on savings.

Many people won’t be aware of the North London Credit Union, based in Enfield, Middlesex, a community-based financial co-operative open to people who live or work in parts of north London (the boroughs of Barnet, Enfield, Haringey and Waltham Forest, and southern Hertfordshire). It has a 12-month fixed-rate cash Isa paying 4% on a minimum deposit of £2,000, or 3% below that, and a 90-day notice account which pays 2.5%.

Meanwhile, the Leeds and Skipton accounts are both five-year fixed-rate Isas paying 4% on a minimum of £1 and £500 respectively.

• 3%-plus Several other credit unions feature in the Move Your Money table, including the No1 CopperPot Credit Union, based in Stockport, which is open to serving and retired police officers, police community support officers, special constables and police staff and members of their family living at the same address in England or Wales. It has an instant access Isa paying a variable 3%.

Erewash Credit Union, open to those living or working in Derbyshire, also has an Isa paying 3%, as does London Mutual Credit Union, which caters for those living or working in the London boroughs of Southwark or Lambeth, and Voyager Alliance Credit Union, which offers financial services to people working in the passenger transport industry in England and Wales.

A number of building societies have Isas paying between 3% and 4%, including the Furness (3.75%), Cheshire (3.5%), Coventry (3.25%) and Principality (3.1%).

• 2% to 3% In addition to several building societies (including Nationwide and the Ecology) and ethical banks (Triodos and Britannia, part of the Co-operative Bank) offering products paying at least 2%, the Move Your Money table features a number of credit unions. These include Clockwise, for savers who live and work in Leicester, Leicestershire and Rutland, which offers an instant access Isa paying 2.5%. The minimum deposit required is £1.

Police Credit Union, based in Birmingham, is also featured. Its 60-day notice Isa pays a minimum of 2.5% (in 2011-12 it exceeded this, paying 2.7%). The minimum deposit is £100.

Credit unions will appeal to many because savings are lent to local people and businesses to benefit the community. But at some, such as Clockwise and No1 CopperPot, transfers in of money held in existing Isas are not permitted.

But a government-commissioned report published this week warned that the credit union movement is “not financially sustainable” on current interest rates.

Personal finance and money news, analysis and comment | guardian.co.uk

These are the third ‘retail’ corporate bonds which have been issued by the supermarket giant, and brokers have predicted that they will prove to be just as popular as previous issues.

Retail bonds aimed specifically at private investors are very different to savings accounts. Investors who enter into these bonds will not have the protection of the Financial Services Compensation Scheme, and if a scenario occurred in which Tesco went under, all capital placed in the bonds would be lost.

The scheme is similar to an investment in Tesco’s shares, however, as with these bonds the retailer has promised a regular annual payment and return of the capital at the end of the term in 2020.

In the meantime, investors are at liberty to sell their bonds, but their value will change and fluctuate according to how desirable investors find them at the specific time

Previous bonds from Tesco are in demand at the moment, so investors in these are currently sitting on small capital gains, and enjoying the continuing interest.

Peter Day, a partner at Killik, said that “In the current low interest rate environment, this bond offers an attractive yield backed by a stable, well-capitalised business.”

Customers are increasingly being refused a refund after their bank card was stolen or accounts hacked

If a current account is hacked and fraudsters start making purchases and cash withdrawals using the card and pin – intercepted by the crooks – most customers would expect the bank to repay the losses without question.

If a wallet is stolen from a locked car, with the pin heavily disguised, most people would still expect the bank to refund any money withdrawn.

But, despite clear rules that state banks can only refuse to refund a customer if he or she has acted “fraudulently” or had been “grossly negligent”, there is growing evidence that the banks are taking a tougher line and refusing a refund – in some cases for the sole reason the thief used the card with a merchant the account holder had also done business with.

Even in the face of overwhelming evidence that the account holder was miles away at the time, and it could not have been them, some banks have been insisting their customer is liable.

If you are one of millions of people who has written down your pin – even as part of heavily disguised code that only you can decipher – the implications are worrying.

This week Guardian Money was contacted by a Sheffield couple who lost £1,260 after their wallet, plus a mobile phone and a satnav, were stolen from the glove compartment of their locked car. Within a few hours the thief had taken cash out of two HSBC accounts – one personal and one business.

The couple had done what many others do – written their pin in a heavily disguised form on a business card. They say the information would only have meant anything to them, and that they are not even sure the business card was in the wallet.

But HSBC has refused to refund the money, arguing that the couple’s real bank cards (not a clone) and the correct pins were used and that, therefore, they have breached the bank’s terms and conditions and were grossly negligent. Their case is complicated by the fact that a year earlier they had asked the bank to raise their £300 daily ATM cash limit to allow them to take out a higher amount – but just for 45 minutes. The bank has admitted that it failed to return the limit after this time, which enabled the thieves to take more than they would have done normally.

The pair, who have banked with HSBC for five years, say local police have not been interested in their case, indicating this is partly because they expect the bank to reimburse them.

Money has also become aware of other cases in which a bank is persuaded by fraudsters to send out a replacement card and pin reminder, which are then intercepted and used by the thieves. Again, the banks refuse to pick up the losses.

Late last year we were contacted by a Mr Singh, who has been in dispute with Nationwide since 2010. Back then he was working on assignment in Bangalore. He was sent a replacement debit card and a pin reminder to his UK home which is occupied by other members of his immediate family.

However, he says, neither arrived. Instead, someone else started using the card in Mumbai, running up a bill of £3,000. He immediately reported the loss and cancelled the card.

Nationwide initially indicated that he would receive a full refund. But a week later it turned down his claim and accused him of being involved in the fraud. It suggested he knew the person who had used the card, a claim he emphatically denied.

After a year and a half investigation, the Financial Ombudsman sided with Nationwide, at which point he approached us looking for some advice. We put him in touch with a specialist card fraud investigator, Richard Emery, who runs 4Keys International. Within four weeks, he had persuaded Nationwide that Mr Singh had a legitimate claim. The building society did not return his money but, instead, paid him his losses as a “gesture of goodwill”.

Had Emery not intervened, he would have faced a lengthy legal court case, and the possibility that he could be accused of fraud in court.

But the reality is that banks cannot refuse a refund because, on the balance of probabilities, it feels there may have been fraud. It has to prove negligence or fraud, yet in many cases they are now turning down refunds where they have suspicion only.

It is not just Money that has noticed this trend. Last week, BBC’s Watchdog programme featured several similar cases. One Barclays customer found his bank cards had been used by thieves to buy two car tax discs from the DVLA website for vehicles he didn’t own. Barclays insisted he was liable because his hijacked card details had been used with a merchant that he had also used. When he pointed out that anyone with a car had to buy a tax disc it cut no ice, although Barclays later refunded him in full.

Another NatWest customer lost £18,000 when a fraudster rang the bank and persuaded it to change his address from a house in Slough to another in Nottingham, and asked for a new card and pin to be sent.

In his case, NatWest agreed to refund the £5,000 that had been moved out of his account electronically, but refused to hand back £13,000 in purchases and cash withdrawals. Even though he could show that he was out of the country at the time they were made NatWest argued that, because the purchases had been made by his exact card and pin, he was liable. Following the BBC’s intervention it has now repaid his money in full.

Richard Emery, who appeared on Watchdog, says that where a customer disputes a transaction there is an onus on the banks to prove that the payment was authorised by them.

The Financial Services Authority’s Banking Conduct of business states that a bank may only hold a customer liable … where the customer has acted fraudulently, or has “intentionally, or with gross negligence, failed to comply with his or her obligations … to take all reasonable steps to keep its personalised security features safe.”

Emery argues that it is quite possible for a customer to keep the card and pin safe, but for a fraudster to obtain them – or just the card details – through other means, which they then use to perpetrate the fraud. In such cases, the bank must repay the customer in full, he says. The Financial Ombudsman Service, where lots of these cases end up, relies on the payment services directive, which came into force in November 2009.

It says that if someone is a victim of fraud, the bank must refund them immediately – unless it has good grounds to suspect that the cardholder has been negligent or acted fraudulently.

A spokesman told Money this week that use of the correct card and pin is not “evidence of negligence in itself. We have always made it clear to financial businesses that just because a pin has been used correctly in conjunction with a card, does not, in itself, mean that the cardholder should be found responsible for the debt.

“We expect to see all the evidence from the financial business demonstrating how it has investigated the disputed transactions and reached its conclusions. We then look at all the evidence from both sides – including the consumer’s recollections – when resolving the dispute.”

Back in Sheffield, there is some partial good news for the couple who had their wallet stolen. HSBC says it recognises it failed to lower the ATM cash limit, so has agreed to refund half of the £1,200 the couple lost.

An HSBC spokesman says the couple admitted to writing their pins on the back of a card held in purse which, even if in a disguised form, is against the account’s terms and conditions and is “considered negligent”.

He says the bank had declined the rest of their claim because it was told there was no damage to the car when it was broken into. Having looked at the ATM withdrawal pattern of both cards, the bank concluded that it was highly unlikely that a thief could have been shoulder-surfed their pin.

It says there were no incorrect pin inputs, no balance inquiry, and no further attempted withdrawals after the cards were reported stolen.

The worst pin numbers to use

A study by cryptographers at Cambridge University has found that crooks have a one-in-11 chance of guessing your pin number – because so many people just use their birth date.

Researchers examined the real four-digit numbers used by millions of people to lock their phones or access specialist websites.

Patterns immediately emerged. Oddly, the digits 69 occur much more than they should at the end of a four-digit sequence, which perhaps says a lot about what’s on many people’s minds.

“About a quarter of people stick with their bank-assigned random pin, and over a third choose one using an old phone number, student ID or other sequence of numbers which is, at least to a guessing attack, statistically random,” says Joseph Bonneau, a researcher in the university’s computer security department.

But the rest are easier to guess. One in 20 people use a simple numeric pattern such as 4545. One in 10 use a pattern on the entry keypad – which suggests you’d be pretty dumb to pick 1379 or even 2580/0852 (down/up the centre of the keypad). “Unfortunately, the final group of 23% of users chose a pin representing a date, and nearly a third of these used their own birthday. This is a game-changer because over 99% of customers reported that their birth date is listed somewhere in the wallet or purse where they keep their cards. If an attacker knows the cardholder’s date of birth and guesses optimally, the chances of successfully guessing jump to around 9%,” says Bonneau.

He reckons banks should ban a hitlist of 100 bad pin numbers (starting with 1234) which, if eradicated, would prevent nearly all attempts at guessing.

A separate study last year by an Apple iOS developer found that the most common four-digit unlock passwords on iPhones are 1234; 0000; 2580; 1111; 5555; 5683; 0852; 2222; 1212 and 1998. 5863 is the numerical representation for the word “love”.

It seems we are also a bit rubbish at picking passwords. A study last year found that the most common password is … password, with “abc123″ not far behind.

Personal finance and money news, analysis and comment | guardian.co.uk

As the pound hits a high against the euro and currencies such as the florint and Turkish lira, is it time to buy your holiday money?

Good news if you are going on a eurozone holiday: the pound is the strongest it has been against the euro since August 2010, which means you should get more spending money for your sterling.

Each £1 is worth around 1.22 euros on the interbank rate, the rate at which banks sell currency to each other, used generally as an exchange benchmark. Rates for consumers are always a bit lower: on 23 April, for example, £1 would have typically bought you between 1.15 and 1.20 euros depending on which online supplier you chose, according to comparison website Compareholidaymoney.com.

So, if you can afford to, should you be stocking up on your holiday euros now for summer?

Some foreign exchange specialists are saying that the strong pound makes it a good time to buy euros, but others forecast that the pound will rise even more.

Alex Lawson, senior broker at foreign exchange company Moneycorp.com says: “There’s a good chance that the pound could rise further against the euro over the next month or two … but this is less down to any inherent strength in sterling, and more due to the continued weakness of the euro. A smart strategy would be to buy some of your holiday euros now, and the rest closer to your departure. That way you’ll get some at a good rate – and may get the rest at a brilliant rate.”

Richard Driver, currency analyst at foreign exchange company Caxtonfx.com, says: “We are expecting further gains in the direction of €1.30 this year.” But he warns: “As ever, consumers should avoid buying their euros at the airport or abroad. Planning ahead can really save you money.”

It is not just against the euro that the pound has risen. Both Hungary and Turkey should be cheaper this year. Paul Crombie, of foreign exchange company Changegroup.co.uk, says sterling is 18% stronger than last year against the Hungarian florint and 14% stronger against the Turkish lira.

The annual Post Office Holiday Costs Barometer of 15 destinations, also suggests good value in Bulgaria and Croatia. Its survey, which compares prices for a shopping basket of 10 items in a resort – including a three-course evening meal with a bottle of house wine for two – found that it has changed markedly over the past year. This, combined with the currency exchange movements, mean that the cheapest resort is not necessarily the one with the weakest currency against the pound.

Rising prices in Spain, for example, where the barometer shopping basket now costs £56.84, means it has lost its best value spot to Bulgaria, where the same goods cost just £42.79.

“Bulgaria is well ahead of its rivals when it comes to value and 4% cheaper than a year ago,” the survey says.

Spain, where escalating meal costs in the Costa del Sol have led to a 35% rise in its barometer total since 2011, has dropped to fourth place. It has been overtaken by the survey runner up, Turkey (£54.22), where resort charges in Marmaris have dropped 22% over the past year and are down by over a third compared with 2010.

The report says: “Prices are now on par with 2008 when Turkey was a magnet for UK tourists in search of a bargain deal – but 28.5% lower than in 2009 when costs first began to soar. The 2012 turnaround comes as restaurants and bars appear to have cut prices to bring back business, resulting in a drop of 12% in local costs.” The 14% rise in the pound against the Turkish lira also means that someone exchanging £500 for lira will have £60 more to spend than last year.

In third place, the Algarve (£54.46) is also ahead of the Costa del Sol for the first time in two years, making Portugal the cheapest eurozone destination surveyed.

Greece and its islands are more costly, despite the financial crisis that has enveloped the country. Prices are up 11% in Corfu and are 21% pricier than neighbour Turkey. But costs have dropped 19% in Cyprus (£57.57), 11% in France’s Vendée region (£66.43) and 6% in Malta (£64.81).

Outside the eurozone, Croatia’s prices are on par with 2011 (£73.65); prices in Dubai (£59.75) are 15% per cent cheaper than its mid-haul rival, Egypt (£70.29). However, the pound has weakened against the US dollar, so that sterling will buy 2.7% fewer US dollars than last April.

And where is the highest priced destination in the Post Office survey? It’s Brighton, UK, where the shopping basket of goods costs £79.25 – 3% more than a year ago.

Personal finance and money news, analysis and comment | guardian.co.uk

But the cull will also include hundreds of investment salesmen in branches.HSBC employs more than 50,000 staff in its British operations, so the cull represents around 4 per cent of its workforce.

The move comes just weeks after HSBC posted a £13.8billion profit and handed its boss Stuart Gulliver a pay package worth £8million.

David Fleming, spokesman for the Unite union, said: ‘Bank staff deserve so much more than this awful treatment by HSBC or any other employer. ‘How can this bank consider staff cuts when it was the workforce that delivered it a profit of £13.8billion?’

He added: ‘The hypocrisy of CEO Stuart Gulliver taking home £8million, while talking up job losses in order to save money, will not be lost on the workforce.’

Unlike state-backed rivals Lloyds and Royal Bank of Scotland, which have slashed tens of thousands of jobs, HSBC remains hugely profitable.

But Mr Gulliver aims to shed 30,000 jobs worldwide by 2013 – 10 per cent of its workforce – as it looks to save £2.4billion a year. Last year HSBC cut 7,000 jobs outside the UK, leaving it with 288,000 employees.

It is also sacking hundreds of investment advisers in branches in response to a ban on commissions designed to present future mis-selling scandals. This will be enforced by the City watchdog at the end of the year.

Source -DM

The Bank’s figures, described by one expert as horrific, highlight the nightmare facing small firms which urgently need money to survive or expand. Its authoritative report reveals lending to small companies has been falling for nearly three years.

Since October 2009, lending to small firms has dropped every single month, compared with the same month in the previous year.

The latest figures, published yesterday, show it was 3.9 per cent lower in February compared with last year, when it was also lower than in February 2010.

To make matters worse, the interest rate being charged by the banks has jumped to the highest level since the Bank cut the base rate to an historic low of 0.5 per cent in March 2009.

At present, the smallest firms in Britain are being charged an average interest rate of 4.83 per cent – nearly ten times the base rate. Lord Oakeshott, a leading Liberal Democrat peer, said: ‘These small business lending figures are simply horrific.

The banks keep charging more and lending less to [small firms].

‘Why can’t the Treasury see that the economy and jobs can’t motor while they let the banks keep siphoning the petrol out of small businesses’ tanks?’

The report comes just days after MPs warned small firms are facing ‘serious and often insurmountable problems’ in getting money from banks at a ‘reasonable’ rate.

The report, from the Treasury Committee, also raised doubts about the Government’s latest attempt to send a financial lifeline to small firms.

MPs said they were concerned that the National Loan Guarantee Scheme ‘was not designed to solve the problem that many small firms, who may be reasonable credit risks, are unable to access bank funding at all in the current market conditions’.

The scheme involves the Government guaranteeing up to £20billion of cheaper loans to small firms. The money, which will be handed out by banks such as Barclays, Santander and Royal Bank of Scotland, will be offered at a lower rate than businesses could normally obtain.

The Government’s previous scheme, Project Merlin, also failed after banks promised to hand out a gross target of £76billion to small firms but fell short by more than £1billion.

In July 2010, the Daily Mail launched its ‘Make the Banks Lend’ campaign to highlight the problems facing small firms.
John Walker, national chairman of the Federation of Small Businesses, said: ‘It is clear that more still needs to be done.’

Source

As high street betting shops and internet roulette claim ever more victims, Simon Murphy meets the gamers who have beaten the odds in a struggle with addiction

Eugene Farrar combed his hair, put on his best suit and polished his shoes. He wanted to make sure he looked the part for the moment he chose to turn his life around. On a spring afternoon last year, the 42-year-old calmly walked into a betting shop in Knaresborough, North Yorkshire, and told a member of staff: “I want to self-exclude – I’ve had enough.” Self-exclusion is a formal process whereby a person can ask a bookmaker to close their account and stop taking their money.

Just hours earlier, he had told his wife Tracy the secret he had been hiding from her for 12 years: he was a gambling addict.

Now, more than a year later, Farrar is perched on his chair, eyes welling up as he recalls the day he says he “got my life back”.

“Tracy said to me, ‘You don’t have to do it alone.’ When someone turns around and says that, it’s a really empowering thing to hear. When someone says they’ll walk with you, you immediately feel stronger,” the professional jazz musician says.

Farrar, whose grandfather owned a betting shop in the 1970s, played a gig in a local restaurant that night and said he “felt relief in every part of my body”. He has not gambled since.

Farrar, who estimates he lost more than £100,000 over two decades gambling, is not alone in his struggle. There are an estimated 450,000 “problem gamblers” in the UK, according to the most recent British Gambling Prevalence Survey.

And the numbers are rising – up from 0.6% of the population in 2007 to 0.9% in 2010, according to one measure. A further 3.5 million people were categorised as “at-risk” gamblers.

And GamCare, an industry funded body that provides support to problem gamblers, told a parliamentary select committee last year that 2% of 12 to 15-year-olds are addicted to gambling.

Betting shops are proliferating in the country’s poorest areas. In Hackney, east London, there are eight on one street alone, and 43 across the borough. In Haringey, where the riots flared up last summer, there are more betting shops than bookshops, according to Tottenham MP David Lammy.

Grasp, an independent reform group set up by former gambling addicts, and London Labour councillor Rowenna Davis recently launched a campaign called High Streets First, which is calling on the government to change the law to allow councils to prevent betting shops from clustering in poor inner-city areas.

Betting shops are classed as financial and professional services alongside estate agents and banks, meaning they can open up in any building that previously housed such organisations without planning permission. A review by retail guru Mary Portas recommended in December that councils be given the power to stop bookmakers opening, claiming “the influx of betting shops, often into more deprived areas, is blighting our high streets”. Last month the government rejected Portas’s proposal, saying councils already had adequate powers.

Lammy, who tabled an amendment to the localism bill last year asking for a change to the class of betting shops, says the government was “squandering the opportunity to change the law to give local people the power to say ‘no’ to more of these shops”.

The rise in the number of betting shops is being driven by a new breed of gambling machines: fixed odds betting terminals. People can bet £100 a spin every 20 seconds on these virtual roulette machines, and Farrar says he has easily lost £1,000 in a single sitting, if not more.

Dubbed the crack cocaine of the betting industry, the terminals account for almost half of betting shops’ profits, and there are thought to be at least 32,000 in the UK, or one machine per 1,500 adults.

Legislation restricts the number in each betting shop to four, but councils are powerless to stop more shops opening. In last month’s budget George Osborne announced a new tax on the profits from fixed odds betting terminals, which could raise £50m a year. Yet critics fear this move may pave the way for an increase in the number of terminals allowed in each betting shop to six or even eight.

“The new gaming machine tax on fixed odds betting terminals proves that the government is addicted to the problem gamblers’ losses,” a Grasp spokesman says.

“These machines offer high stakes and high-speed play never seen before on our high streets. You can lose £18,000 an hour without being asked a question. They’re the perfect vehicle to fuel problem gambling.”

The internet has also provided problem gamblers with a new platform to pursue their addiction in secret. According to the Gambling Commission, 9.8% of people gamble online, up from 5.2% in 2006.

Problem gambling is not confined to the residents of deprived inner cities. Phil Mawer, privately educated in Taunton and captain of his university rugby team, had a successful career in support services for the oil industry, which saw him working through a civil war in Yemen and, more recently, in Afghanistan.

Happily married and living in Cyprus, working abroad for months at a time, the ease of internet gambling – specifically, blackjack – proved his undoing. He estimates he lost £500,000 over 20 years.

“Sure, I’ve dabbled with fixed odds betting terminals, but I was that far gone with the internet that I didn’t need to look for even quicker ways of blowing my money,” says Mawer.

“I do take responsibility for gambling but if I had a choice, why – given my circumstances – would I have taken such a destructive path in my life?

“I’m an intelligent guy, university educated, well-paid, I’m running an operation with 2,000 employees, 6,000 clients – I’m very renowned in my small industry.”

Mawer, 49, whose wife died last year, has written a self-help book for problem gamblers, Overcoming Gambling, detailing the methods that helped him stop. His last bet, in a casino at Frankfurt airport on 11 August 2006, is a moment he describes as his “rock bottom”.

He recounts the day he told his wife about his addiction. After returning from a trip working abroad, she confronted him with bank statements as they sat down for a drink on the veranda. “She was very, very shocked – there wasn’t anger immediately,” he says. “She was looking at three months of statements. She then went to the bank with her daughter and asked for five years’ worth of bank statements for all the accounts, credit card, the lot.”

Hours later, Mawer was forced to lock himself in the bathroom after his wife came at him with a kitchen knife during the night.

Years before, Mawer’s wife had suspected he was having affair but, in reality, it was his secret gambling that was forcing him to sneak around in the manner of an cheating husband.

“Everything you’d be trying to do if you were disguising a relationship is what you do as a gambler,” says Mawer, who admits he spent up to nine hours a day gambling online.

“You’ve got highs and lows and you try to disguise that – you become inattentive, over-attentive when you’re trying to cover up. You become emotionally barren as you have to cover the wins and the losses.”

For many former gambling addicts, the problem can be traced back to an early age.

Bobby Gee, 34, remembers being taken horse racing when he was eight. Throughout his teens he dabbled with bets on the greyhounds and, when he went out with friends to the pub, he would always be the one playing the fruit machine.

“I was in denial for many years that I had a problem,” says the father of two. “It never really bothered me – I’d always find a way to pay the rent. There were always people to borrow money off. I only really started to think it was a problem when I had a mortgage.”

Like so many others, fixed odds betting terminals offered Gee, a pub manager, an outlet for his addiction. He would find any opportunity to slip off to the betting shop – before or after work, during lunch, on the way to the shops.

“I’d have, say, £1,000 a month to pay the mortgage and arrears, and I’d go to the bookies thinking, it doesn’t matter, I’ll only use a couple of hundred quid. Then I’d lose the whole month’s payment,” says Gee, who lives in Brighton.

“As far as my missus was concerned, the mortgage was paid, but it wasn’t. To this day she doesn’t actually know how bad it was.”

Gee, who says he is “probably 10 or 20 grand in debt” because of gambling, used to take money out of the safe at a restaurant where he worked to fund his habit. He says he always replaced it – borrowing from friends, family, credit cards and high-interest payday loan companies.

“I got so good at lying. The things I was saying I actually started to believe myself,” he says. “It was always things like the car had broken down, I couldn’t get to work. Especially when you phone up people like credit card companies or the mortgage people, it’s always the lie of home improvements going over budget.”

For Gee, Mawer and Farrar – who are hoping that their stories will encourage others to deal with their gambling problems – there is no reason to lie any more.

‘Gambling is an illness, not merely a compulsion’

Two-thirds of patients treated at the UK’s first specialist problem gambling clinic have indicated that controversial fixed odds betting terminals encouraged their addiction.

Dr Henrietta Bowden-Jones, who set up the NHS National Problem Gambling Clinic in London in 2008, also told Guardian Money society needs to recognise gambling is a fully fledged addiction rather than a mere compulsion. She hopes changing people’s perception of the illness will stimulate extra funding.

“It’s difficult for people to understand the severity of the illness unless they come into contact with patients. We have 2,000 files of people who have been referred to us. For example, they have lost their home, or their parents’ home, through gambling,” Bowden-Jones she says. “Many of them have broken marriages and have been separated from their children, lost their jobs or ended up in prison because of the gambling.”

The clinic, which has 10 staff including volunteers, survives on a budget of £300,000 a year, but Bowden-Jones hopes to increase funding by launching a charity called Gambling Concern.

“My dream is to have a day hospital and a drop-in centre, capturing people when they’re hot off the bookmakers. I can’t do that without the extra funding,” she says. “The fact that gambling is a hidden addiction works to the detriment of the pathological gambler because sometimes problems have gone so far with the gambler being able to hide the addiction, that by the time people pick up the problems it is an extremely serious addiction with people feeling suicidal. They don’t want to live any more because it’s a negative reality where they have no job, and no contact with friends because they’ve tried to borrow money and people have disowned them. They have no spouse, they’ve lost touch with their parents, they have no home.”

She says prisoners have written to her begging for treatment on the day of their release, indicating they will reoffend otherwise.

“Illegal activities among our patients are quite high. These are people who have an addiction and then steal money because they want to fund more gambling. The statistics are quite high – 40%, 50% of gamblers have committed illegal acts,” she says. “I really believe one of the things we should be doing, which we’ve started at the clinic, is to educate the criminal justice system to the fact that this is an illness and it needs to be taken into account when people end up in court.”

While gambling addiction is largely viewed as a male problem, roughly 10% of the clinic’s patients are female.

Professor Jim Orford, a leading expert on problem gambling at the University of Birmingham, thinks the ease of internet gambling poses a particular threat to women. “It’s something you don’t have to go out of the house to do, so women who stay at home are certainly at risk.”

Orford is also highly critical of fixed odds betting terminals, and backs the High Streets First campaign. “The kind of games you play on them are not your old fruit machine games – these are casino-type games of a kind that used to be confined to casinos. Now, here they are on the high street. By their very nature, I’m not surprised they combine all the features you would expect that make gambling particularly dangerous.”

Orford, who is launching a campaign group, Gambling Watch UK, thinks Tony Blair’s government lifted the lid on gambling. “As a country we were really quite restrained about gambling. It wasn’t advertised, it wasn’t encouraged – it was a bit of a dirty word among most people. Then the national lottery came and made a difference. It got gambling advertised in a big way, and all the other gambling firms got together and asked for a level playing field so they could be advertised themselves. I think there has been an enormous rise in gambling and an enormous rise in the accessibility. Attitudes are changing slowly and we really should be worried about it.”

• Has your local high street been taken over by betting shops? Please let us know in the comments below.

Personal finance and money news, analysis and comment | guardian.co.uk

In a bitter blow to millions of households, deputy governor Paul Tucker said Britain will be stuck with high inflation for much of 2012.

The stark warning from Mr Tucker – who is among the favourites to succeed Sir Mervyn King as governor next year – dashed hopes that the worst squeeze on household incomes since the 1920s will come to an end any time soon.

The Bank also warned that Britain could already be in the midst of a nine-month recession before recovering in the second half of the year.

The gloomy verdict comes as cash-strapped families struggle to make ends meet in the face of muted wage growth and soaring prices.

Savers – who have been hammered since interest rates hit lows of 0.5 per cent more than three years ago – are also suffering as no high street savings accounts are currently beating inflation.

And millions of thrifty pensioners have seen their retirement plans shattered by the Bank’s £325billion money printing programme

Official figures yesterday showed the average pay rise across the country is just 1.1 per cent – well below inflation, which rose from 3.4 per cent in February to 3.5 per cent in March.

Scott Corfe, senior economist at the Centre for Economic and Business Research, said: ‘Household incomes continue to fail to keep pace with the rising cost of living, implying an ongoing erosion of living standards.’

In February, the Bank forecast that inflation would fall to the official 2 per cent target later this year, having peaked at 5.2 per cent last September.

At the time, Sir Mervyn said: ‘With falling inflation and the prospect of an end to the squeeze in real incomes leading to a recovery in growth, we are moving in the right direction.’

But Mr Tucker yesterday admitted there had been ‘bad news on the inflation front’ and it ‘remains uncomfortably above target’, dealing a blow to hopes of recovery.

He told a conference in Liverpool: ‘I think inflation might remain above 3 per cent throughout the second quarter of this year and possibly into the second half of the year.’

Simon Ward, chief economist at asset management firm Henderson, said the Bank was on course for another ‘forecasting miss in 2012’.

He warned that even the projection that inflation would finish the year at 2.75 per cent may be too optimistic.
The Bank is likely to have to ratchet up its predictions once again in next month’s Inflation Report, in another embarrassing revision to its forecasts.

Mr Tucker blamed a 5 per cent rise in oil and gas prices since February and a host of tax changes in last month’s Budget, including a 37p rise in cigarette duty.

‘Already in February there was a risk that inflation might fall back towards target less quickly than incorporated into our “most likely” central outlook,’ he added.

Mr Tucker’s comments suggested that the Bank will not sanction printing any more money through its controversial quantitative easing programme.

Source

Some 19% of people with savings and investments worth more than £250,000 are considering a new life overseas, which is up from 17% six months ago and 14 per cent a year ago.

The figures suggest that at least 500,000 people with that level of personal wealth may leave the UK in the next two years.

Investing in improving the infrastructure, such as roads, railways and communications networks, is seen as the most important way to make the UK a more attractive place to live, with 61 per cent of wealthy people choosing this option.

But cutting regulatory red tape for businesses, lowering taxes and improving public services such as healthcare, education and the police were all high on the agenda.

Nicholas Boys-Smith, director at Lloyds TSB International Wealth, which carried out the survey, said: ‘While the figures strongly suggest we won’t see a mass exodus, it is clear that a significant and growing minority see opportunity and a better quality of life overseas.’

Crime and anti-social behaviour is the most popular reason for people to contemplate leaving the UK, chosen by 56 per cent.

While the figures do reveal that a minority of wealthy people are discontent about life in the UK, a majority of 62% said they are currently happy with the UK as a place to live.

Some 42% of wealthy Britons think the UK offers a worse quality of life than other developed countries, while 41% think life in Britain is generally more stressful than life overseas.

Source – DM